Terminology Used in Futures Trading
There are 76 entries in this glossary.All
| Term | Definition |
|---|---|
| Approved Delivery Facility |
This refers to the standard body that will deliver the futures commodity to you on completion of your futures contract. |
| Arbitrage |
It is the process in which you buy and sell commodities simultaneously in different markets in order to take full advantage of the difference in price between them. |
| Basis |
This refers to the difference between the actual price of the commodity in the market called its spot price and the price of the nearest futures contract for this particular commodity. |
| Bear |
A bear refers to a person who thinks that the market will go down (i.e. who believes the prices will fall). |
| Bear Market |
A market in which the bears make money (i.e. a market in which the prices are falling is called a bear market). |
| Bid |
A bid is when you show that you are interested to buy that particular commodity at a given price. |
| Broker |
A broker refers to a person or a company through which or through whom you actually do all your futures trading (i.e. buy and sell your futures contracts). |
| Bull |
A bull refers to a person who thinks that the market will go up (i.e. who believes that the prices are now going to increase). |
| Bull market |
A market in which the bulls make money (i.e. a market in which the prices are increasing is called a bull market). |
| Call Option |
A call option refers to the option that will give the buyer the right but not the obligation to purchase the futures contract at a price on or before the expiration date. |
| Cash Commodity |
A cash commodity is the actual physical commodity on which the futures contract is based. |
| Cash Settlement: |
Cash settlement is the method in which the futures contract is settled in a cash transaction, instead of the actual delivery of the commodity. |
| Churning |
The phenomenon in which the broker executes lots of unnecessary trades in order to derive a profit from the commission that he gets per trade is called churning. |
| Commission |
The broker fee is called a commission (i.e. the fee you pay to the broker for executing your transactions). |
| Commodity |
That item whose value is traded on the futures market. It may refer to actual commodities like rice and gold or to financial commodities like currency and interest rates. |
| Commodity Futures Trading Commission (CF |
It is a regulatory agency of the United States that regulates and administers futures markets. It is a federal agency. |
| Commodity Pool |
It is the mutual fund of the futures market. In this, a group of people contribute money and together trade as a group in the futures market and the profits are distributed according to the capital invested. |
| Commodity Trading Advisor (CTA) |
The person who provides advice to the customer regarding which futures commodities to buy and when to buy or sell, and who is generally registered with the CFTC. |
| Confirmation Statement |
It is the statement that is issued by the Futures Commission Merchant to the customer when the customer buys the futures option and the positing has been initiated. It gives information about the number of contracts and price sold or bought. |
| Contract Month |
It is the month in which the delivery of the commodity is to be done according to the futures contract. |
| Convergence |
It is the phenomenon in which the price of the futures and physical commodities converge and become similar. This is especially the case in the contract month. |
| Day Order |
It is a futures order to buy or sell that automatically expires at the end of the day if it is not executed during the current trading session. |
| Day Trader |
A trader is someone who will generally buy and sell a futures contract in the same day or trading session. They are generally speculators. |
| Default |
A default occurs when there is a failure to deliver the commodity as required by the futures contract. It may also refer to failure to meet a margin call or a failure to take or make delivery. |
| Deferred Delivery Month |
It refers to the far away delivery months which are involved in trading of the futures commodities. |
| Delivery |
Delivery refers to the cash commodity being transferred to the buyer of the futures contract from the seller of that contract. It can be in terms of cash settled or the delivery of the actual physical commodity. |
| Derivative |
A derivative is any financial instrument whose value depends on something underlying like a commodity or any other financial instrument. |
| Disclosure Document |
The statement that the broker gives to the customer describing the trading strategies, fees, performance of assets, etc. is called a disclosure document. |
| Discount |
In the futures market, discount generally refers to the price difference between the futures contract of different delivery months or days (e.g. September is trading at a discount to July). |
| Discretionary Action |
When the owner of an account used for futures trading gives rights to another person, usually the broker or advisor, so that the broker or advisor can trade with that account without the prior approval of the owner is called as discretionary action. |
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